The American dollar appears to be making its fluctuations yesterday’s news as it’s headed for new heights and is currently at its highest level for May, perhaps even for 2017 so far. This new strength largely results from positive economic reports from the States, as well as the high probability of a rate hike next month.
Looking back into the past months, the dollar starter 2017 in a fantastic manner: after Trump’s election the USD reached levels unseen for the past decade. However, Trump’s presidency saw a good amount of challenges and investors began to doubt whether he’d succeed at implementing the economy-boosting measures he promised, which led to a decline in the dollar. This continued up until a few days ago when Trump again surprised us by dismissing Comey, the head of the FBI, for reasons that are still dubious.
Still, the USD somehow was able to overcome all this and start gaining again, most probably because we’ve had a more or less calm week in terms of political events, so the markets haven’t been disturbed much. The Federal Reserve seems extremely likely to increase interest rates again in June. Considering that the rest of the world is focused on the opposite kind of measures, this creates a lot of potential for the dollar to strengthen more against other major currencies.
Perhaps talks of parity with the euro may begin to circulate again. Although the European currency rallied earlier this week with the relief that Macron won the presidential elections in France, the impact was not strong enough to make the euro invulnerable and it has declined since.
On the contrary, economic data from the US comes in consistently positive. We are awaiting further reports even today. Overall, it seems that the labor market is stable and if the Fed increases interest rates to battle inflation, the American economy could prosper.
Still, we should not forget that the American president is a highly volatile factor. He has already shown that he can be inconsistent in his opinions and impulsive in his actions. If the market participants feel distrust towards him, that could pose a significant hurdle for the dollar to truly take off.
